Global disruptions still continue as industries walk out of the pandemic and face new challenges related to geopolitics. While organizations try to overcome these challenges by managing costs and cash flows, optimizing procurement can also prove to be an effective way to improve supply chain performance. Weak procurement processes can lead to production delays, stock-outs, and disruptions in the supply chain.
McKinsey identifies a positive correlation between improving procurement processes and corporate performance (See Figure 1).
Figure 1. Correlation between procurement health and corporate performance
This article explores 4 ways to optimize procurement operations to help supply chain leaders to improve performance in this uncertain and volatile market.
1. Focus on transparency
Having a centralized platform for recording all procurement transactions and processes is a good way of achieving procurement transparency. This way, the data is shared between the buyer and seller to enable enhanced monitoring and visibility.
IBM offers integrated solutions that enable transparent procurement and collaboration:
2. Improve supplier engagement
Focusing on strengthening supplier relationships and increasing supplier engagement is vital to successfully implementing a centralized procurement platform and optimizing the overall procurement process. Establishing a good understanding of the suppliers is fundamental to healthy procurement.
Supplier relationships can be strengthened by:
- Establishing a mutual understanding of goals and objectives
- Regular supplier network risk assessment
- Diversifying the supplier network
- Leveraging digital technology to enable data sharing and communication
- Improving sustainability to maintain the attractiveness
To learn more, check our comprehensive article on improving supplier relationship management.
3. Focus on inventory optimization
In the post-pandemic world, the focus of inventory management is shifting from just-in-time to just-in-case by placing high levels of inventory on hot spots along the supply chain.
The inventory management model should be integrated with the procurement plan since they both work hand in hand.
Some steps to improve inventory management are to::
- Reduce manual inventory management tasks and leverage automation
- Focus on items that account for the majority of the sales
- Utilize data from customers and suppliers to improve forecasting
- Use the ABC method to prioritize items based on how fast they move
- Renegotiate lead-time with suppliers
To find the best digital inventory management solutions that suit your supply chain needs, check out our list of:
4. Leverage automation
Automation is revolutionizing every industry by improving efficiency and productivity and reducing human errors. Some of the procurement processes that can be automated are:
- Purchase acquisitions can be time-consuming processes since they have long approval cycles in organizations with strict hierarchical structures. Automating purchase acquisitions can help save time for the purchasing team.
- Invoice management is another error-prone task that can be automated. Mis-managed invoices and misplaced purchase receipts can cause payment delays and inefficiencies in the procurement process. Invoice management automation can enable features like auto invoice approval of small-scale purchases.
- Vendor management can also be automated by automating tasks such as communications, contract management, procurement project updates, and data recording.
Watch out how BCG explains the benefits of procurement automation.
You can also check our list of procurement software to find the option that best suits your procurement needs.
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